KARACHI: Monetary expansion dropped sharply in the first quarter of the current fiscal year, indicating that the economy is not getting the required liquidity for higher growth.

The State Bank of Pakistan (SBP) reported that monetary expansion so far in 2016-17 is one-third of what it was during the same period of the last fiscal year. Larger monetary expansion in the preceding fiscal year had helped the country achieve over 4 per cent economic growth.

Monetary expansion during the first quarter of 2016-17 was 0.12pc or Rs15 billion against 0.45pc or Rs45bn in the same quarter of the last fiscal year.

While the situation appears to be favourable for higher monetary expansion, the private sector has remained idle while the government has been borrowing only to meet its budgetary deficit.

Its borrowing for the budgetary support during the first quarter was almost double the borrowing recorded in the same period a year ago. It reflects that either revenue inflows are poor or expanses are going over budget. Independent economists have been identifying heavy expenses incurred in the fight against terrorism as the reason for higher government borrowing.

The borrowing for the budgetary support in the July-Sept quarter along with the first week of October was Rs391 billion against Rs191bn a year ago.

With the beginning of the new fiscal year, the government started borrowing from the central bank, which shows a change in its pattern of borrowing. During the last three years, the government had been borrowing from scheduled banks.

The government borrowing from scheduled banks in the first quarter is still negative, as debt retirement by the federal government amounted to Rs226bn in the period under review.

Data for the first quarter of the current fiscal year shows that the private sector borrowed less from, and retired more to, banks.

Finance Minister Ishaq Dar and SBP Governor Ashraf Wathra have received international awards for improving the economy. However, they have failed to encourage the private sector to increase its credit off-take.

The last fiscal year was the only year when the private sector showed some sign of improvement and borrowed Rs460bn. The SBP said some projects that were not getting credit previously also received loans in 2015-16.

Credit to the private sector during the first quarter does not show improvement over the last fiscal year, as it was negative 141bn compared to minus 66bn a year ago.

Analysts have been predicting that the economy will grow due to improved law and order, subdued inflation and record-low interest rates. In particular, the private sector can bring a major change to the economy in view of the China-Pakistan Economic Corridor.

Published in Dawn October 23rd, 2016

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